Model equivalence tests in a parametric framework

Abstract

Empirical researchers commonly want to assess the validity of restrictions on parameters, appearing as an economic hypothesis, a consequence of economic theory, or an econometric modeling assumption. I propose a new theoretical framework to assess the approximate validity of multivariate restrictions in parametric models. I construct tests that are locally asymptotically maximin and locally asymptotically uniformly most powerful invariant. The tests are applied to three different empirical problems.